On Tuesday, 18 March 2025, PayPal Holdings Inc (NASDAQ: PYPL) presented its strategic vision at the Bank of America Electronic Payments Symposium. The company highlighted its ambitious plans to enhance growth and market presence through innovative payment solutions and strategic shifts. While PayPal aims for significant growth, challenges remain in balancing expansion with profitability.
Key Takeaways
- PayPal plans to increase branded business growth from 6% to 8-10% by 2027.
- New checkout experience aims to cover 80% of global volume by 2027.
- Fastlane initiative boosts guest checkout conversion rates by 50%.
- Focus on profitable volume growth and international expansion.
- Enterprise payments authorization rates exceed peers by 500 basis points.
Financial Results
- Branded business growth target: Increase to 8-10% by 2027.
- Buy Now, Pay Later (BNPL) volume growth: Expected over 20% in the next few years.
- Pay with Venmo growth: Targeting a 40%+ CAGR through 2027.
- Enterprise payments aim to double transaction margin dollars by 2027.
- Value-added services revenue: Projected to grow at a high single-digit rate.
Operational Updates
- New checkout experience: Targeting 80% global volume coverage by 2027, starting with the U.S.
- Fastlane: Achieved a 50% increase in conversion rates and brought in 25% new users.
- Mobile optimization efforts have led to a 100 basis point lift in usage.
- Enterprise Payments: 70% of volumes concentrated in North America.
Future Outlook
- New checkout experience expected to drive 1-2 points of branded volume growth over the next two years.
- Anticipated acceleration of enterprise payments growth by late 2025 or 2026.
- Expansion of omnichannel offerings, beginning in Germany.
- Partnership with Verifone to start in North America, followed by global rollout next year.
- Strategic focus on growing volume outside the U.S., with an emphasis on Europe.
Q&A Highlights
- Fastlane is a strategic tool to integrate customers into the PayPal ecosystem and enhance branded checkout engagement.
- The company is prioritizing merchant acceptance and consumer engagement for Fastlane.
- Braintree is being rebranded as PayPal Enterprise Payments, focusing on profitable growth.
- PayPal emphasizes its open platform strategy, allowing third-party integrations to enhance merchant capabilities.
Readers can refer to the full transcript for a detailed account of the conference call.
Full transcript - Bank of America Electronic Payments Symposium:
Jason, Interviewer: Alright. We’re ready for our next session here, and, we are very excited to have Frank Heller from PayPal with us. He’s General Manager of the large enterprise business. So Frank, we appreciate your time.
Thanks for being here. And it would be good just to start maybe for those who are a little less familiar or didn’t make it to the Investor Day, Just tell us a bit about your role and responsibilities and how that’s evolved at PayPal over time.
Frank Heller, General Manager of the large enterprise business, PayPal: Sure. Thanks, Jason, and super excited to be here talking about WinCheckout actually. Right. Thank you. That’s very important for all of us.
So I’ve been with PayPal for fourteen years, started in Germany, ran the market for a while, and I’m now overseeing our large enterprise merchant platform group. So think of it as kind of two roles that I have. One is all the success driving success with our large enterprises around the world, globally, all the brands that you can imagine, all big brands. And then the second part of the job is providing the platform capabilities to connect the consumer and the merchant side of our tool side network. More specifically, that’s everything around checkout and that’s everything around enterprise payments.
Jason, Interviewer: It’s a lot. Well, the title of your presentation at the Investor Day was Win Checkout. So the investment community was obviously super focused on what you had to say. It’s a great interest certainly a great interest to investors. And so PayPal has this target now to accelerate growth in the branded business to about 8% to 10% in 2027.
We’re sitting at 6% today. A big part of that is the new checkout button and you guys have been talking about it for a bit. So tell us why is it better than the old button?
Frank Heller, General Manager of the large enterprise business, PayPal: Sure. Let’s start there. If we look at our branded checkout experience, we looked at what is getting in the way for our customers. And we have been highly focused on delivering a best in class experience. And if you break that down, that is basically, first, we looked at login, which is a friction, especially on mobile.
Who wants to type in a password? Who wants to remember a password? Who wants to type in a username? So we’ve moved login from a manual approach to a biometric approach, and we see ninety five percent log in success rate there. Second thing was we speeded up the experience.
We’ve improved the latency of our experience by 40%. We’re not stopping there. We’re actually moving the whole checkout stack to the cloud, which should give, especially for international customers, a further acceleration. We have also looked at buy now, pay later, which is embedded into our checkout, so every PayPal customer can get buy now, pay later. And we have made design changes, made the design much more modern, also more sleek, especially on mobile.
And we are seeing a 20% lift in buy now, pay later, actually over 100% in first time users. And we’re making it more personalized. And when you take all of that together, you see between 104 basis points in lift in convert rate. But we’re not stopping there. These are the things we’ve rolled out.
We are rolling out, and I think we’re going to talk about this. But there’s also more innovation that is coming that my team is actively working on, thinking about leapfrogging even further what we can do, bringing AI, bring our data capabilities to the forefront, making it much more personalized.
Jason, Interviewer: Excellent. Excellent. Yeah. So let’s talk about kind of rollout plan. I know what you laid out at the Investor Day is that the new checkout experience would be available to 80% of your global volume by 2027.
I think that compares to, I’m going to call it, low double digits today, maybe 10% to 12%. So that rollout is expected to drive, I think, one to two points of the acceleration in the branded volume growth over the next two years. So how do we think about going from, call it, 10% to 12% today to 80% in 2027? I mean, what does that progress look like? Is it pretty ratable?
Let’s start there.
Frank Heller, General Manager of the large enterprise business, PayPal: Yes. So when we looked at getting this new experience to in the hands of our customers, we started with the biggest customer pools and market by market. And our biggest market is obviously The U. S. And we start in The U.
S. That’s where we have developed and co developed with customers this new experience and we started rolling out. The next will be Europe, which is our next largest markets are Germany and The U. K. And then we roll out through the rest of the world.
If you click into it, there’s almost three phases to it. Some of our merchants, we have an infrastructure that’s been out there for over twenty years. Right. Some of our merchants sit on what I call a platform integration, which means they’re able to not only absorb our latest checkout experiences, but also other capabilities. And those who sit on that platform integration, we can pretty much, without much of their help or any help, scale those experiences.
And that’s the phase we’ve been on. You would call it ratable because it’s it’s just scaling through. We’ve been working through the different verticals, and we shared we’re about 30% in The US right now. Right. We keep growing through that and accelerating.
Then there comes a middle phase, which is now you have merchants that don’t sit on a platform integration. Especially with large enterprises, we go in with our Salesforce. We work through that. So you can expect a little bit of slower slope because merchants need to do work. And then there comes a third phrase.
We haven’t announced when, but we’re going to deprecate our old experiences, which means that then I expect actually for the laggards, some of them to accelerate again. So think of it in three phases. First, scaling without merchant help, then having conversations and making them move to the new experience and the platform. And then the last part is really us shutting down the old experiences. And then when you look internationally, as I said, U.
S, Europe, rest of world with the same patterns basically.
Jason, Interviewer: Got it. Got it. Okay. All right. So we’ll be looking to Germany and UK next.
I think that’s starting later in ’twenty five, if I
Frank Heller, General Manager of the large enterprise business, PayPal: recall correct. Yes. We’re actively working on that.
Jason, Interviewer: Okay. Excellent. Now were there specific economic incentives that you’re ever offering the merchants to adopt the new button?
Frank Heller, General Manager of the large enterprise business, PayPal: So when we’re in front of merchants, we’re basically selling on value. And the how we engage in the conversations is we show usually the merchant side by side and we’re talking to larger enterprises now mostly mostly Mhmm. And partners. We show a side by side of the old experience and the new experience. And just by the speed of it, a lot of them say, okay, we get it.
Mhmm. But then we go in and show merchant specific data throughout the funnel, how the different pieces would drive Lyft. One of the things I’ve not earlier talked about, I want to mention here is that merchants have to make a choice what kind of payment methods are they presenting to their customer. And we’re now able with we have made an innovation which is called payment ready API, which is a signal to the merchant telling the merchant basically, hey, you have a PayPal customers, you have a Venmo customer, you have a Pay Later customer, and the propensity of that customer to choose that payment method, which allows them then to prioritize for our customers, our payment method. That’s also very helpful in terms of getting the prioritization in.
Jason, Interviewer: I see. I see. So let’s think about this rollout to UK to Germany. What is the competitive environment in those markets look like for branded checkout compared to The U. S?
And will the implementation challenges of the new button be different, do you anticipate, relative to The U. S? Yes.
Frank Heller, General Manager of the large enterprise business, PayPal: International is very important for us. It’s actually 60% of our branded check out volume is coming from international markets. If you look at international, Germany is the next largest market and then The U. K. And then other European markets and the rest of the world.
The environment is highly competitive and highly dynamic also because we have a lot of regulatory regime changes that we see happening. When I look at those markets, the biggest thing that we’re working through is markets that show strong customer authentication, especially The UK, where our biometric launching passkeys and so on to simplify that login experience is is very, very important. So we’re highly focused on rolling out this across those markets. And then about the speed, we actually have a higher share of platform integrations with in our international markets than in The U. S.
We have about 50% of all merchants sit on these platforms, which allow my hunches will see a little bit of faster ramp there. But we don’t know what we don’t know. We’re in the middle of it.
Jason, Interviewer: Right. Right. Right. Okay. So 50% of the merchants internationally are on the latest integration.
What is that in The US?
Frank Heller, General Manager of the large enterprise business, PayPal: I think Alex said this before. It’s about a third.
Jason, Interviewer: Okay. Okay. All right. So that may give you a little bit of a leg up, if you will. Yes, exactly.
So it’s early days, obviously, with the new button, with the rollout there. But what does your data show so far just in terms of frequency with which the consumers are employing the new button in a mobile versus a desktop environment compared to how they’ve used the traditional button?
Frank Heller, General Manager of the large enterprise business, PayPal: Yes. We’ve been super focused on mobile. I mean, you want to focus on where consumers shop and a lot of traffic is happening more and more on mobile devices. And our experience has not been optimized for mobile. And that’s why we focus on the design to make it very slick.
You don’t have to scroll on mobile. It’s very neat. It’s very clear, very simple, clear steps. When do you wanna pay, how do you wanna pay, what kind of funding method, where do you wanna ship your item. You can see all of that in one page.
And then especially on mobile, the login experience, making it biometric so that it’s super seamless. These are things that we’ve been focused on, and we see a hundred basis point lift based on driving that. And we get extremely good customer feedback on that experience. I think it’s a super powerful experience.
Jason, Interviewer: For sure. For sure. So speaking of biometric, Apple Pay obviously always comes up as a kind of premier e commerce checkout experience. So how would you say PayPal’s new button compares to that? And then just hearing a little bit about Apple Pay’s planned entry into non Safari browsers, that’s still nascent, but seems like it’s coming down the pike.
How does that potentially impact the competitive landscape from PayPal’s perspective?
Frank Heller, General Manager of the large enterprise business, PayPal: We’ve been hyper focused on delivering an experience that is a best in class experience. And I that our new I can confidently say, when you use the new PayPal experience, it is as slick as anything out there. It is especially on mobile, it is super powerful. If you have our app installed Yeah. You will not see we use the app as an authentication method.
You it will feel like other biometrics. It is super slick and seamless. There’s a lot of speculation when competitors launch new experiences. I get inbound. Internally, we have a lot of debates about it, you can imagine.
Jason, Interviewer: Yes.
Frank Heller, General Manager of the large enterprise business, PayPal: I have personally looked into this. We have not seen a significant difference in any share dynamics based on these announcements. So, so far, I can say it’s pretty consistent. But there’s always speculations.
Jason, Interviewer: Right, right, right. Yes, I’m sure that will continue. You guys gave some other interesting new disclosures into 57% of transactions are vaulted. And so that’s where the user is saving PayPal as their payment method with a particular merchant. So subscriptions, gaming, ride sharing, auto recurring type transactions.
Then there’s the one time checkout. That’s the other 43%. So that’s where the user is doing PayPal kind of on a transaction by transaction basis. I think you see that a little bit more with retailers online. So we’d love to hear a little bit more about kind of the respective growth rates of Vaulted versus one time and maybe any notable differences in average transaction size.
Frank Heller, General Manager of the large enterprise business, PayPal: Sure. So let me start with our vaulted experience is actually our best in class of the best in class. It has a 95% conversion rate. I think it will be very hard for a retailer to find something like that out there. And the reason is once you’re vaulted, and I’ll come to that in a second, so meaning you’re stored, you have stored PayPal on that merchant, it is basically a zero friction experience.
You focus on you’re right. You focus on your your your, whatever it is, shopping experience, and the payment happens in the background. Because we have multiple funding sources
Jason, Interviewer: Yep.
Frank Heller, General Manager of the large enterprise business, PayPal: In the wallet, we have backups. So if your card fails,
Jason, Interviewer: we
Frank Heller, General Manager of the large enterprise business, PayPal: can pull from another card, we can pull from bank. Maybe you have balance. That’s why you see the super high conversion rate. So to your second part of the question, which is, how do we see the shift or any shift, we see an acceleration actually of recurring transactions. People are using more subscriptions.
They like using PayPal for that. It’s very convenient. And so we’re seeing a little shift from one time to recurring, from one time to vaulting also because we’ve been driving these integrations with a lot of merchants because it’s the best performing experience and it’s sticky. Once you have vaulted PayPal Yeah. You don’t think about it, you use it all the time.
So it’s for us and for the consumer and for the merchant, a really good experience. We have sticky. We have high conversion rates, so merchants love it.
Jason, Interviewer: Yeah.
Frank Heller, General Manager of the large enterprise business, PayPal: And the consumer, it’s a friction free experience. What we had to work on was the vaulting process to make that easier because that is usually an extra step. And that’s what we’ve been working on as well with the new experience.
Jason, Interviewer: Okay. Okay. Understood. And just kind of staying on this theme of acceleration in branded volume growth over the next couple of years, about a point an additional point of that acceleration is expected to come from buy now pay later and that’s a market PayPal has been in for quite a while. Obviously, I think you’re forecasting 20% plus BNPL volume growth over the next couple of years.
So tell us a bit about your buy now, pay later product perhaps versus some of the other competitors that are
Frank Heller, General Manager of the large enterprise business, PayPal: out there like Affirm and others. Yes, sure. So we’re operating in seven markets. We’re one of the leading players in all of them. And we have processed $33,000,000,000 in TPV last year.
We’re planning to double that in the three year plan that we’ve shared. And it is that the advantage is it’s sitting within the wallet. It’s also expressed outside of the wallet when if merchants want it, but it comes with every PayPal transaction you can choose to pay later. And we’ve been focused actually on the new experience to make that slicker and easier. That’s why we’ve seen that lift in volume there.
We have because we know all of our customers, we have 65% of all the PayPal customers are preapproved. And we’re now showing consumers, hey, you can for sure get a pay later with this merchant in this transaction. So one of the advantages is merchants don’t need to do anything. If they offer PayPal, they get, embedded pay later. What we see is if they if these merchants drive upstream now, pay later and have offers around this, we see a 35% lift in sales for the merchant.
Jason, Interviewer: Is that becoming more common?
Frank Heller, General Manager of the large enterprise business, PayPal: That is becoming more common. Others are doing that as well. Yeah. It’s we have a super slick process because we know all of our customers. And then we’re also driving further innovation.
I think we started sharing that we’re going, have we’re going to have an omnichannel offering, which will start in Germany. And so you’ll see us also innovating here around the world.
Jason, Interviewer: Yes. Great. Great. So the last part of the branded volume acceleration equation is PayWithVenmo. Yes.
So you’re talking about maybe a point of growth from that over the next couple of years, eight billion dollars of volume last year on Pay with Venmo. You’re looking at a CAGR of 40% plus through 2027. What are the sources of that growth and just the confidence level there? I know Pay with Venmo has kind of had some fits and starts over the years.
Frank Heller, General Manager of the large enterprise business, PayPal: Yes. A point of growth coming from Buy Now Pay Later, point of growth coming from Pay with Venmo. $8,000,000,000 tripling roughly tripling it in the three year plan. We’ve been pretty nascent on Pay with Venmo, if you think about that option. Actually, last year, we had a 50% increase.
So the team is highly focused, 50% increase in merchant share. What we’re seeing where we have very strong product market fit is actually in mobile centric and mobile first use cases. And retailers are super interested in the demographic, engaging with those customers. And if I think holistically, we’re shifting the conversations. That’s true for all types of branded checkout experiences.
We’re shifting the conversation with retailers to it’s in checkout where we can also drive consumer demand back to you. So through offers, through rewards, now think about this demographic. It’s there’s a high affinity to get this demographic back to a customer. So using us as a channel to drive demand. And so as we’re working through the different verticals, I would say, you see things like gaming, so digital.
You see things like quick service restaurants. All of these things are high is a high affinity for Pay with Venmo, and we’re just getting started. We have very solid execution. We talked about the 80% share. So our commercial teams are highly focused on getting the new experience, getting paid later, and getting Pay with Venmo out to the merchant base and to really leverage our scale of our four thirty million customers on the merchant and the consumer side.
Jason, Interviewer: So is that part of kind of more of a holistic sales approach as opposed to there being a dedicated, you know, pay with Venmo sales team?
Frank Heller, General Manager of the large enterprise business, PayPal: Correct. So I would say that is, in general, a big shift, what we’re doing. Right. We have announced PayPal Open. And the notion of PayPal Open to merchants is you come to us once and you get a whole set of capabilities.
You get our awesome branded checkout experience, you get Pay Later, you get Venmo, you get demand generation through offers and rewards. And then we have all the I think we’ll talk about that later, all the payments and value added services capabilities.
Jason, Interviewer: For sure. For sure. Yeah. Alright. Well, I wanna shift off of branded checkout.
I know it’s one of your favorite topics, but we’re gonna go to Fastlane because that’s another favorite topic. So you had the initial rollout last year, you had a bunch of partnerships, Adi and Fiserv, etcetera. You’re targeting guest checkout. And at the Investor Day, 25% of Fastlane users are new to PayPal. You guys talked about and over 50% of those users have had an inactive PayPal account, which I thought was an interesting metric.
So tell us how FastLane helps both these new and these, I guess, I’ll call them former users engage or in some cases reengage with PayPal more broadly?
Frank Heller, General Manager of the large enterprise business, PayPal: Yes. So when we looked at expanding our share in checkout, we saw this untapped opportunity in guest checkout. Big pain point for consumers and for merchants. Fifty four percent of consumers drop out in guest checkout. That’s immediately impact the bottom line of a merchant.
So we innovated with Fastlane. We see a 50% lift in conversion rate there. We see 40% of consumers actually opting into it and they have a 36% faster experience. What was interesting is we looked at who is actually doing this. And we saw, as you said, 25% of users we haven’t seen, in branded, 50 are have used us in the past.
So they have a dormant account, you could say. So we have their data on file, but they haven’t used us recently. So we see Fastlane as a second bite, to the Apple and get them into our ecosystem and then reengaging those customers, actually, for brand at checkout. Mhmm.
Jason, Interviewer: Okay.
Frank Heller, General Manager of the large enterprise business, PayPal: I’m happy to explore that a little bit further if you want.
Jason, Interviewer: Yeah. Well, I guess I’d be curious, like, on the inactive side, how do you get them from being dormant to being active? I mean, are you are you serving up some kind of offer, the feedback loop through through because like you said, you have their email address.
Frank Heller, General Manager of the large enterprise business, PayPal: Correct. Correct. So I think what a, what was interesting, we’re already seeing a bump in engagement of customers that used Fastlane also on the branded side. And we have done nothing. We haven’t done marketing.
We haven’t done growth loops. We have done nothing. So what we’re working on right now and doing experiments is what are the marketing loops, what are the in app and application growth loops to drive them back? What are the value messages you can imagine? You can do package tracking.
You can do offers. You can do, buy now, pay later. All these things are only available if you use, us on the branded side. Yep. And what we’re highly focused on is actually getting people into the app because the app is now a switch for us.
A, it’s a mobile experience. It enables a lot of seamless biometrics, but it also has a surface where you can get pre and post purchase experiences that you usually cannot get in a guest checkout. It also helps merchants because what we do with Fastlane and Branded, people don’t wanna log in to their merchant store, and we help linking those accounts making that easy for a merchant so they don’t miss out on that.
Jason, Interviewer: Yeah. Yeah. Okay. Okay. And and let’s hit on monetization.
Of course, that’s where the the rubber meets the road, you know, at least at least for this group. Right? So what meets the road, at least for this group, right? So what is the monetization strategy behind Fastlane and just timeline on that? I mean, I know you’ve been trying to build merchant acceptance first, which makes sense, but any thoughts there would be
Frank Heller, General Manager of the large enterprise business, PayPal: Yeah. I think when we announced it, everybody got super excited about this, so I get this question
Jason, Interviewer: a lot. Yeah.
Frank Heller, General Manager of the large enterprise business, PayPal: Yeah. So we’re right now think about it this way. We’re focused on building a network effect. It’s a big part of the pie. Getting consumers engaged will drive overall engagement.
So we’re focused on driving merchant acceptance. That’s why we have announced all these partnerships. We’re continuing to build out partnerships with Audient, with Fiserv, we have JPMorgan. We have a couple others in the pipeline, we have e commerce partners to get distribution out there. And that is similar to branded checkout, it’s a slope.
When you think about direct monetization, we’re right now not focused on that piece. We’re focused on the effect it does driving the brand at checkout experience. But if you think about your optimization or monetization opportunity is adding value added services. So now imagine you have a customer and a merchant that has this guest checkout chair. I can now come in with value add service like our fraud management, chargeback protection, chargeback automation, buy protection, all these kind of things, and help the merchant to reduce costs.
And so I can monetize there. And there’s way more things we can do on that. So we have multiple avenues to monetize, and that that’s the next follow on step that we’re
Jason, Interviewer: focused on. So it’s more of, like, an indirect flywheel effect rather than
Frank Heller, General Manager of the large enterprise business, PayPal: Indirect flywheel and then it’s attachment of value added services.
Jason, Interviewer: Okay. Yep. Yep. That all makes sense.
Frank Heller, General Manager of the large enterprise business, PayPal: And there’s I think we want to keep flexibility. And I don’t want to slow down our market penetration by putting that wall up.
Jason, Interviewer: Right. Right. Well, and especially if you’re getting this knock on effect of, oh, these Flashland users are not using the button more, right? Obviously, that’s accretive. Yes.
Frank Heller, General Manager of the large enterprise business, PayPal: And we didn’t know that
Jason, Interviewer: when we
Frank Heller, General Manager of the large enterprise business, PayPal: called it out. So now that’s great initial proof.
Jason, Interviewer: Right, right. Yeah, definitely. Sounds like that’s a nice getting that uplift is a big deal. I wanted to move on to the, as you call it, the enterprise payments business. A lot of people call it Braintree, unbranded, it’s got some different names, I guess.
But unbranded processing, it’s about a third of PayPal’s total volumes. It’s a pretty competitive space. So how does PayPal actually differentiate itself in unbranded?
Frank Heller, General Manager of the large enterprise business, PayPal: Yes. Let me make a comment on that Braintree. Yes. So we’ve announced that we’re moving away from Braintree was a brand we have acquired many, many years ago. We have a bunch of brands that we have acquired.
And we have decided that on the merchant side, we’re positioning PayPal Open as the merchant brand. So as part of that, Braintree will become enterprise payments for PayPal enterprise payments. And that’s why we’re moving away from the name. Everybody in the industry knows Braintree, so it’s a synonym for that. We’re some of the most sophisticated and largest merchants around the world are using us for payment processing.
Think Meta, think Uber, think Booking.com, highly sophisticated merchants. And what we’re hearing is there we’re highly competitive on our auth rates. We’re actually versus peers. We’re about 500 basis points above authorization rates even of the most competitive players in the market. And, that’s something the team is very proud of.
And you can imagine if we look across the whole space, we recognize about 97 of all buyers across our premises. Now take that data off the two sided network, combine it with payment processing, put AI and ML models into it Yeah. And do a lot of optimization. And that’s why we see, that incredible high performance of our payment processing. Plus, we have a set of value added services, payouts, risk as a service, FX, payment optimization.
And we have an open architecture with orchestration where we’re already one of the largest orchestrators in the world. And that’s why we’ve announced this open PayPal open platform strategy. So that’s kind of the bundle that merchants get. And then last but not least, of course, our branded capabilities, including Fastlane.
Jason, Interviewer: So if we think about I think you talked about international as being a focus for the enterprise payments business going forward. Do you have to differentiate in any other way there versus The US? Just maybe compare and contrast the competitive landscape a little bit?
Frank Heller, General Manager of the large enterprise business, PayPal: Yeah. We have, I’ve talked about in Investor Day three growth levers. One is, one is omnichannel, the other one is growing in geos, and the other one is in vertical. So let me touch upon those three. You mentioned geos.
70% of our volumes right now concentrate in North America, which is the highest competition also in transaction margin. So focusing outside of The U. S. Is very important for us for growth. We’re looking at what are the capability gaps that we’re closing right now
Jason, Interviewer: so
Frank Heller, General Manager of the large enterprise business, PayPal: that we can grow, especially in Europe. This is also where omnichannel comes into play. We’ve announced this partnership with Verifone that I’m super excited about, which gives us the opportunity to really address holistically volume of merchants that we couldn’t do before. Before, we were purely online. We have dabbled a little bit in it.
But the biggest hurdle for merchants to actually also get to a modern processor in in store is the investment, the upfront investment. With a partnership with Verifone, we make that upfront investment close to zero. So if you have a contract with Braintree and to use Verifone terminal, you can actually start processing online and in store going forward. And so that’s something we’re rolling out starting in North America and then rest of the world next year that I’m super excited about. And there’s way more things as we’re now also present in store.
We’ve talked about PayPal Everywhere, which is bringing our branded business to in store. We’re doing this here as well. Now you can think about how to bring all of these capabilities that I talked about in store, driving customers, driving loyalty, driving customer recognition. So there’s a lot of things that we can think about that. And the last growth lever was around vertical, which is very similar to the geo question, talking the language of the vertical, knowing exactly what matters for those.
And we have teams that are now rallying around that that also close capability gaps. Think of travel, things like that, crypto, very specific. AI is a big focus for us to make it roads there.
Jason, Interviewer: So last year, you embarked on this price to value strategy in the Braintree business and the real positive outcome has been that Braintree is now driving contribution to transaction profit growth, which for a period of time it was not. Now the other byproduct as expected volume growth decelerated, right? So we’ve seen that in recent quarters. So when should investors expect to see Braintree volume growth bottom out? When will the trough come?
And then is there a normalized growth rate, if you will, that we should think about once you’re kind of largely through implementation of the price to value strategy?
Frank Heller, General Manager of the large enterprise business, PayPal: Yes. I’m actually very excited about the trajectory of our enterprise payments business. If you think about it, we have made the deliberate decision to part ways with unprofitable volume. Right. That was vanity metric.
We’re no longer chasing that. So we had very difficult conversation with a couple of clients, and we got rid of share unnatural share. None of those clients have churned. Clients are actually, because of our performance, now coming back and giving us volume a little bit back. But that said, it has given us a 5% headwind in TPV growth, but it’s adding one point of margin dollars to our P and L.
And in the back book, so those were tough conversations. Some of them continue, but most of the big ones were through that is leading to the deceleration that you’ve talked about. But the front book conversations are going extremely well. Let’s not be fueled. We’re still extremely competitive on price.
We’re winning deals. Actually, we get very positive feedback on our pricing structure. And combined with our performance, we’re now having holistic conversations where we talk from everything about them, from branded checkout, Fastlane. We talk about payment processing. We’re talking about value added services, so we have a much more holistic conversation about value and the total economics of the relationship to us so that we’re accelerating growth.
And to your question, my expectation is that as we’re going to ’twenty six and maybe let the last part of ’twenty five, we’re we’re starting to accelerate again.
Jason, Interviewer: Okay. Okay. Good. Good. And so maybe you can just go a layer deeper into one of these price to value conversations with one of the big merchants.
How do those go exactly? I mean, how much volume are you typically giving up? How much improvement in the unit economics do you get? Any quantification of cross sell that gets enabled as part of those more holistic conversations that you just referenced?
Frank Heller, General Manager of the large enterprise business, PayPal: As I said, so I think these are highly specific and
Jason, Interviewer: Everyone’s all different. Yeah.
Frank Heller, General Manager of the large enterprise business, PayPal: And a lot of it was quite concentrated with some players. And so we’ve been working through those relationships. As I said, change of regime, a new CEO coming in, setting a different direction. You can imagine that some of those conversations have been difficult. And of course, we’re not breaking contractual relationships.
So some of them we’re living through, but we have come to an agreement. And actually, merchants understand that it needs to make sense for both sides. And now I think it’s also good for all of us here that we’re focused on profitable growth. And it’s not only processing. A lot of the margin is coming from value added services.
And the new team, I have a new leader who is overseeing our enterprise payments business, is highly focused on adding and attaching value added services. Something that has happened before was in order to get volume, we’ve given away value added services for free. That is changing. So that is a lot of and people get it. If you add value, if you get an incremental value, you can also charge for it.
And I’m very proud of the when I look at the peer comparison of our performance, that customers are giving us volume back when they said, okay, you’re not giving us these incentives, so I’m going to a competitor. And some of them are saying, you know what, I’m coming back because I see the performance.
Jason, Interviewer: Interesting. Like the author rates, for example? Yes. Okay. Okay.
That’s definitely an interesting data point. And I want to spend a little time on value added services because I feel like over the years, PayPal has talked about it more so at certain points of time than others. It was definitely a focus at the Investor Day and as you mentioned, new leader of enterprise payments. So it sounds like there is kind of a real kind of renewed push in this area. I think you talked about the revenues for value added services growing at a high single digit rate through 2027.
And you’re trying to really grow transaction margin dollars, right, for enterprise payments by 2x by 2027. So VAS is supporting that. So you’ve touched on in a couple of other answers some parts of the VAS business, but maybe let’s just drill in a little bit like which are maybe the handful that you’re most excited about that are going to move the needle towards those revenue and transaction margin dollar targets?
Frank Heller, General Manager of the large enterprise business, PayPal: Yes. So all of our VAS are extremely margin rich. And we want to double that business basically. If you look across all our value added services starting from payouts over risk management, over FX to payment optimization, even to orchestration, all of those are powered by the data of our two sided network. So with $1,700,000,000,000 going through our rails, we have four thirty million merchants, 20 six billion transactions on our platform with a 97% recognition rate.
All of these capabilities are fueled by that data. And I think you’ll see that as a theme of our open platform that the data is going to fuel these capabilities. We’re actually even opening that up. We’ll talk about this later. But let’s pick payouts.
Payouts not only gives people the capability to do a pay in and connect it to a payout, But it also drives back to branded, the 50% of our payouts volume going into PayPal and Venmo wallets. So that is, again, a fly a loop. I look at FX capability, something we’ve done forever on the branded side. We’re exposing that now and externalizing it for merchants. Taking the arbitrage, it’s better for the merchant.
They can have a lower rate on it. They have stability for small merchants, very hard for them to do and we get a high margin. Take risk management, something we’ve done also forever in our branded network, we’re exposing that now for merchants. By the way, not only on volume we process, but also volume of other processors. And you see us creating that theme of opening the ecosystem up for our value added services for our merchants.
Jason, Interviewer: How do you price the value added services typically?
Frank Heller, General Manager of the large enterprise business, PayPal: So it depends. Mhmm. But some of them are transaction based. Some of them are take rate. It really depends.
Some of them are performance based. You can you can think of some of the payment optimization capabilities are performance based. So it really depends. It depends on who you’re talking with. If you’re talking to a very sophisticated merchant or if you’re talking to a small business, they want it more packaged and shrink wrapped.
Jason, Interviewer: Mhmm. And
Frank Heller, General Manager of the large enterprise business, PayPal: that’s something my colleague, Michelle is highly focused about. I think the beauty of the platform we’re building is you get enterprise grade capabilities that even an Uber or Meta is consuming. And now we bundle it up for small businesses, and they get that power
Jason, Interviewer: Right. As
Frank Heller, General Manager of the large enterprise business, PayPal: if they’re more or large ring wrapped, super simple to use capability, and Michelle is super
Jason, Interviewer: Like a preconfigured bundle? Correct. Yeah.
Frank Heller, General Manager of the large enterprise business, PayPal: So think of it, the one gets APIs and cables, and the other one gets a really nice plug.
Jason, Interviewer: Right. Right. Right. Yeah. No.
That definitely makes it easy for the SMB to kind of act like they’re a larger enterprise. I guess, are there do you see any holes in your VAS portfolio that you really need to fill to maybe get to parity with others? Or you feel like you have all the pieces?
Frank Heller, General Manager of the large enterprise business, PayPal: I think VAS, we were just getting started.
Jason, Interviewer: Yeah.
Frank Heller, General Manager of the large enterprise business, PayPal: We we have not had highly focused investment into this. Right. Some of it, we actually have best in class experience. We haven’t exposed it to the outside. I talked about FX.
I talked about RAS, risk as a service. Payouts, we have Hyperwallet, which becomes enterprise payout. Payouts for us, it’s something where we have some gaps that we’re closing. Also segment specific, some for it for small businesses versus enterprises. But we have a very, very strong and very high performance portfolio already, and we have so much opportunity ahead.
Jason, Interviewer: All right. Well, we’ll look forward to that. You mentioned briefly orchestration, but maybe for those who might be a little bit less familiar, what is orchestration? And then we’ll talk a little bit about what PayPal is doing in that area.
Frank Heller, General Manager of the large enterprise business, PayPal: Yeah. So think of it this way. When you wanna go as a large enterprise, you wanna go internationally. You gotta find a processor that works in that geo, which means you gotta go through the whole process of technically integrating with that processor, enabling that volume, doing separate ledgers, all the things that come along with it. If you wanna include a loyalty provider, now you gotta integrate with that loyalty provider.
You gotta take the token and identity, forward it, match it together. An orchestration layer, and that is the whole premise of PayPal Open, is you integrate once into the platform. We have over 100 connections already to PSPs around the world, technical integration to us, and then you get all these services. So you can expand geographically. You can enable new use cases, can even experiment with it, which is otherwise a super steep investment.
And you might you might ask who who is who is doing orchestration, who is doing it themselves. Some of the super large, they can do it. I’m talking super large. They’re sophisticated. They can do it.
They wanna optimize their payment volumes. But think about maintaining 100, two hundred, three hundred connections. Even if you’ve done the investment, those connections become stale. Each one of these providers are innovating, are updating their specs, are adding new capabilities. So now suddenly, you have a team in house that needs to maintain all of those connections.
We do all of that for
Unidentified speaker: them.
Jason, Interviewer: Right. So it takes a cost burden off?
Frank Heller, General Manager of the large enterprise business, PayPal: It takes the cost burden. It takes an organizational burden off of them. So I’m super excited. And the last piece, which is a little bit more future looking, is I wanna create a platform that third party providers can integrate into us, get that data that I talked about, these data signals will never expose personal information of a consumer. So it’s more data signals.
Get those can enrich their services and use our platform to grow with them, either leveraging our distribution channels or just our technical platform. That’s something we haven’t even tapped into, and it’s not baked. We might ask and all of you, it’s not baked into our growth plans. Okay. But that’s another thing I’m super excited about.
Jason, Interviewer: Do you see orchestration going more down market to, you know, to to to to to small businesses?
Frank Heller, General Manager of the large enterprise business, PayPal: That is something I was Is there
Jason, Interviewer: a need?
Frank Heller, General Manager of the large enterprise business, PayPal: Very surprised. We did a study and we looked at who is a natural fit for orchestration. I thought it’s all out market.
Jason, Interviewer: Right.
Frank Heller, General Manager of the large enterprise business, PayPal: But we found that mid market smaller mid market merchants from GMV sales side of $4,000,000 to $50,000,000.70 percent of them said, I’m actually interested, but I don’t know how. So, again, you gotta bundle that up for them to make it super simple so they probably get less knobs and dials.
Jason, Interviewer: Right.
Frank Heller, General Manager of the large enterprise business, PayPal: It’s similar, like fraud management. Some have an in house fraud management team. They want to do it all themselves. Others, like, just do all of it for me. And so that’s really how we differentiate enterprise versus small business.
It’s less the platform. It’s more the packaging because they have less resources and less knowledge.
Jason, Interviewer: Makes sense. You nailed it. Zero. That’s it. We’re out of time.
Wow. Exactly.
Frank Heller, General Manager of the large enterprise business, PayPal: You nailed it.
Jason, Interviewer: Sorry. Well, we both nailed it. Thank you very much. We appreciate it. Thanks, Frank.
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